3 Industrials Stocks Walking a Fine Line

Whether you see them or not, industrials businesses play a crucial part in our daily activities. Their momentum is also rising as lower interest rates have incentivized higher capital spending. As a result, the industry has posted a 12.3% gain over the past six months, beating the S&P 500 by 8.9 percentage points.

Although these companies have produced results lately, a cautious approach is imperative. When the cycle naturally turns, the losers can be left for dead while the winners consolidate and take more of the market. On that note, here are three industrials stocks that may face trouble.

MSC Industrial (MSM)

Market Cap: $5.46 billion

Founded in NYC’s Little Italy, MSC Industrial Direct (NYSE:MSM) provides industrial supplies and equipment, offering vast and reliable selection for customers such as contractors

Why Is MSM Risky?

1. Products and services are facing significant end-market challenges during this cycle as sales have declined by 1.9% annually over the last two years
2. Falling earnings per share over the last five years has some investors worried as stock prices ultimately follow EPS over the long term
3. Diminishing returns on capital suggest its earlier profit pools are drying up

MSC Industrial is trading at $97.81 per share, or 21.1x forward P/E. If you’re considering MSM for your portfolio, see our FREE research report to learn more.

Otis (OTIS)

Market Cap: $29.91 billion

Credited with inventing the first hydraulic passenger elevator, Otis Worldwide (NYSE:OTIS) is an elevator and escalator manufacturing, installation and service company.

Why Do We Avoid OTIS?

1. Organic revenue growth fell short of our benchmarks over the past two years and implies it may need to improve its products, pricing, or go-to-market strategy
2. Anticipated sales growth of 4.4% for the next year implies demand will be shaky
3. Earnings growth underperformed the sector average over the last two years as its EPS grew by just 5.4% annually

Otis’s stock price of $77.90 implies a valuation ratio of 18.6x forward P/E. Dive into our free research report to see why there are better opportunities than OTIS.

Huntington Ingalls (HII)

Market Cap: $14.15 billion

Building Nimitz-class aircraft carriers used in active service, Huntington Ingalls (NYSE:HII) develops marine vessels and their mission systems and maintenance services.

Why Should You Dump HII?

1. The company has faced growth challenges as its 4.4% annual revenue increases over the last two years fell short of other industrials companies
2. Demand will likely be soft over the next 12 months as Wall Street’s estimates imply tepid growth of 3.7%
3. Falling earnings per share over the last five years has some investors worried as stock prices ultimately follow EPS over the long term

At $360.50 per share, Huntington Ingalls trades at 21.2x forward P/E. To fully understand why you should be careful with HII, check out our full research report (it’s free).

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